Holy Clayton Christensen! Another wave of “disruptive innovation” is on its way, and this time the Internet of Things is responsible!

I’m confident that the IoT is going to bring about radical change throughout a wide range (if not all…) of vertical markets in the near future, through new realities such as giving everyone who needs it access to real-time information or by making preventive maintenance simple through real-time data from products such as jet turbines (General Electric is, again, a leader…).

However, for concrete evidence of how the IoT will change things, perhaps the best industry to look at is auto insurance, where the IoT is facilitating a fundamental shift in marketing, from the prior practice of basing premiums on proxy indicators such as a student’s grades or a person’s credit rating (leading to the heinous — and expensive — crime of “driving while poor,” LOL).

Progressive Snapshot

Instead, what is emerging worldwide (especially in Europe) is “usage-based insurance” (UBI), where the rates are based not on guestimates, but the driver’s actual behavior!

“‘In five or ten years, all insurers will have dynamic driving data, so all will be able to offer discounts,’ says George Ayres, vice president of global sales for Verizon Telematics. ‘There will be no more asymmetry in terms of what they know about customers, so price alone won’t be as effective [for acquiring and retaining customers]. …The insurers who are out front on this idea are realizing [that soon] all will [have to] start to provide much wider breadth of services to keep those captured through price.’

“These services can be as simple as sending additional driving data to the driver’s smartphone, or as complex as auto insurance bundled with a customer relationship solution that sends alerts for scheduled maintenance.”

What a transformation!

Smart business leaders will start paying close attention to the features of the Internet of Things, and begin planning now on how to get ahead of the curve on making certain they are the beneficiaries of disruptive innovation — not the victims!

“Leading companies are now finding that a green supply chain doesn’t just improve the public’s perception of their company and brand; it can save money by using resources more efficiently and reducing waste. It can also help to manage risk by insulating a company from shortages and price shocks, and by reducing the chances that a supplier will do something that gets them in hot water.”

It continues by identifying five key factors to reduce:

“Leading companies create value by modifying their supply chains to manage five key inputs and outputs: energy, carbon, water, materials and waste. These five resources are ubiquitous throughout the supply chain and thus offer vast potential for improved efficiency and cost reduction. Energy is expensive to use; carbon, in the form of emissions, represents dollars gone up in smoke; scarcity and commodity inflation are driving up the price of water and materials; and waste is a potential profit thrown away.”

In my speeches on the “Zero-Waste Economy,” I used to suggest that executives that were contemptuous of tree-hugging environmentalists and could care less about generating wastes should just substitute the work inefficiencies for waste. What hard-nosed company could justify inefficiency?

It’s great to see that the message is finally getting mainstream acceptance, and I really do think that the IoT will boost supply chain efficiency and thereby reduce environmental impacts by allowing everyone in the supply chain who needs operating data to share it simultaneously and in real time.

So there’s really no excuse any more for not practicing smart environmentalism, is there?

PS: To get the specifics about how to translate smart environmentalism into profits, check out Gil Friend’s Natural Logic. He’s got the operating manual.

“…leverag[es] existing TV and cellular transmissions, rather than generating their own radio waves. This novel technique enables ubiquitous communication where devices can communicate among themselves at unprecedented scales and in locations that were previously inaccessible.”

Thus, existing wireless signals are transformed into a source of power and a communication medium.

You can imagine the implications for the Internet of Things!

Among other applications, the researchers say ambient backscatter could be used for wearable devices, smart home systems, and sensor networks such as ones embedded in bridges to give advance warning of maintenance problems. It could also be used for NFC payments.

CIO reports that:

“Groups of the devices were tested in a variety of settings in the Seattle area, including inside an apartment building, on a street corner and on the top level of a car park. These locations ranged from less than half a mile away from a TV tower to about 6.5 miles away.

“They found that the devices were able to communicate with each other, even the ones farthest from a TV tower. The receiving devices picked up a signal from their transmitting counterparts at a rate of 1 kilobit per second when up to 2.5 feet apart outdoors and 1.5 feet apart indoors. This is enough to send information such as a sensor reading, text messages and contact information.

“The researchers were able to demonstrate how one payment card can transfer funds to another card by leveraging the existing wireless signals around them.”

The U of Washington team won the prize for the top paper at the Association for Computing Machinery’s Special Interest Group on Data Communication 2013 conference in Hong Kong.

What a breakthrough! It looks like Kris Pister’s “smart dust” vision will be a reality soon!

Once again, I’ll harken back to my days as a corporate crisis consultant to warn that this is precisely the kind of incident that is going to be repeated ad nauseum by privacy advocates and others to warn about the dangers of the IoT.

Even worse, those of who are immersed in the IoT 24/7 may not realize it, but I’d bet the majority of people worldwide still haven’t heard of the IoT. Is this the way we want them to find out about it???

So my parting advice would be to go out today and buy a Foscam baby monitor (heck, they’re probably giving them away now — who the heck would buy one?) and put it in a place of prominence on your CEO’s desk as a reminder that if you don’t take privacy and security seriously, the media will be quick to remind you…

I say that because I spent a decade as an award-winning corporate crisis communicator — on more than one occasion saving the corporate bacon of Fortune 100 firms that didn’t understand that the public isn’t always scrupulously logical when it comes to their fears. Illogical linkages are nonetheless real ones.

“Among other things, Pew finds that ‘a majority of Americans – 56% – say that federal courts fail to provide adequate limits on the telephone and internet data the government is collecting as part of its anti-terrorism efforts.’ And ‘an even larger percentage (70%) believes that the government uses this data for purposes other than investigating terrorism.’ Moreover, ‘63% think the government is also gathering information about the content of communications.” That demonstrates a decisive rejection of the US government’s three primary defenses of its secret programs: there is adequate oversight; we’re not listening to the content of communication; and the spying is only used to Keep You Safe™.”

“‘I can see all of the devices in your home and I think I can control them,’ I said to Thomas Hatley, a complete stranger in Oregon who I had rudely awoken with an early phone call on a Thursday morning.

“He and his wife were still in bed. Expressing surprise, he asked me to try to turn the master bedroom lights on and off. Sitting in my living room in San Francisco, I flipped the light switch with a click, and resisted the Poltergeist-like temptation to turn the television on as well.

“’They just came on and now they’re off,’he said. ‘I’ll be darned.'”

I’m convinced that people who are already alarmed about the NSA surveillance will not be enthusiastic about home automation, or the IoT in general, when they read that! If not overt, their minds will at least make a subliminal connection between the two stories, and they’re going to be afraid!

Here’s a major part of the problem, based on my crisis management background: engineers, more likely than not, are left-brained and analytical. As a result, their immediate reaction will be to demonstrate — very logically — why the two issues are completely different, and the IoT shouldn’t be tarred with the NSA’s abuses.

Hogwash.

The majority of Americans aren’t engineers, and they’re scared, so deal with it, or the IoT will be crippled.

I’ve just drafted an op-ed that I hope to place this week that argues privacy and security must be just as much an #IoT industry priority as is innovative technology. It says that the emphasis of IoT consortia such as the IPSO Alliance and the IoT Consortium on collaborative approaches to security are critical, because the essence of the IoT is on sharing of data, and that the Obama Administration must become active as well.

It concludes:

“The Internet of Things has truly remarkable potential to improve the economy’s efficiency, improve health care, and make our lives more comfortable and enjoyable. But if it’s security and privacy standards aren’t a top priority for government and industry, all of those benefits may be squandered. “

OK, I admit to losing all sense of objectivity on this one! After all, it hits all my sweet spots:

Internet of Things (AKA General Electric’s “Internet of Things”)

3-D printing

crowdsourcing/collaboration.

As I wrote earlier, about GE’s collaboration with Electric Imp and Quirky, this exemplar of Industrial Age might (what could be more powerful than a GE locomotive???) really seems to get it that the Internet of Things is as much about new attitudes of collaboration and sharing data as it is about Internet technology.

GE jet engine mount

So it’s no surprise that Industry Week reports on a new GE initiative, soliciting crowdsourced designs for a new jet engine bracket that will be produced through 3-D printing.

“‘For any industry to be successful, you really need to develop communities or ecosystems of partners and thought leaders…

‘No sustainable, established industry technology exists without multiple players, multiple styles of thought, multiple ways of growing … We feel like one of the best ways to stimulate that, to find the newest and best ideas, is to start with open collaboration.'”

Bravo!

Contrast that attitude with what is still all too prevalent, as summarized by Paul Horn, former senior vp of research at IBM:

“Horn remembers a time before open innovation — a competitive, suspicious era when innovative and great, transformative ideas were only allowed to grow in a tightly sealed vacuum.

‘When we built the Almaden Laboratory at IBM in the early 1980s, we put it south of Silicon Valley on purpose,’ he recalls. ‘In those days, our biggest fear was the leaking of intellectual property out into the valley.'”

I suspect that one of the biggest obstacles to full realization of the IoT’s promise will be the difficulty of leaving that old zero-sum game, my-gain-is-your-loss mentality behind!

I wasn’t aware that this latest competition, to design a 3-D printed bracket strong enough to support a jet engine on a commercial plane, is part of a 2-year crowdsourcing initiative, with approximately $20 million in prizes for products, designs and processes, especially in 3-D printing:

“‘We’re trying to find thought leaders in this area — people who may know through a technique they’ve devised or a piece of software that they’ve found or just their own experiences what is the best way to design with additive for real industrial parts,’ Furstoss explains. ‘We’re really at the birth of industrial additive technology. This is a way for us to build support for that community of makers.'”

Furstoss says the crowdsourcing competitions are no knock on GE’s own 50,000 engineers: “‘We have a platform in place that can put a student in his dorm on the same plane as our engineers,’ she says. ‘We’re making sure that people who may have ideas, may have skills, may have things to offer have an opportunity to bring them forward, no matter who they are.'”

It’s that kind of openness to not only new technologies, but also new management practices, that will give GE a huge head start over competitors that have yet to come to grips with the new reality: the Internet of Things!